- Investment Research Partners
- Jan 1
- 3 min read
Updated: Nov 26
“If you asked the public what they wanted, they would have said a faster horse.”
– Henry Ford
Those in endowment management most certainly have heard of legendary investor, David Swenson. He served as the Chief Investment Officer of the Yale University Endowment from 1985 until his passing in 2021. Under Swensen's leadership, the Yale Endowment saw remarkable growth. From the time he took over in 1985 to around 2020, the endowment grew from about $1 billion to over $30 billion. His management yielded an annualized return of approximately 13.1% from 1985 to 2020, significantly outperforming broader market benchmarks. A large part of Swenson’s success may be attributed to his willingness to look significantly different than peers, to take a very long-term view, and to incorporate a heavy allocation to private and alternative investments. This approach today is often referred to as the “Yale Model” or the “Endowment Model” of portfolio management.
Swenson and Yale helped to formalize the private investment industry, and while they may sound opaque or provocative, private investments are often not too dissimilar from public ones in their base characteristics. For example, an investor who owns a publicly-traded stock or a privately-held business has the right to their proportionate share of company assets and future cash flows in either example. The same is true for an owner of a publicly-traded real estate investment trust and the owner of a portfolio of buildings held privately. Public companies offer more liquidity than private ones, but being publicly-traded also comes with greater exposure to market volatility and price swings. Public companies have better transparency as they are subject to specific and standardized reporting requirements. Owners of private companies often have greater ability to drive value and operational improvements than passive owners of publicly-traded stock. And, the opportunity set for private investors is significantly greater, often with better pricing and lower competition; there are approximately 665,000 private companies in the US and only 6,000 publicly-traded ones. Due to these attributes, private investments may provide portfolios with enhanced long-term returns relative to public markets. And, larger institutions with potentially greater sophistication and larger allocations to alternative and private investments have historically outperformed their smaller peers.
Institutional Investors have been allocating to alternative investments for decades
The largest organizations have the highest allocation to alternative and private investments.
They also have the best long-term results.
We believe private markets can offer greater return potential because of the wider opportunity set, lower competition, and greater ability to drive operational improvements at the companies.
We Believe the Types of Alternatives and their Risk / Reward Profiles are Diverse
The vast majority of US companies are privately held
Companies are staying private longer, potentially reducing public investors’ ability to participate in gains as a company grows
Important Information
Past performance may not be representative of future results. All investments are subject to loss. Forecasts regarding the market or economy are subject to a wide range of possible outcomes. The views presented in this market update may prove to be inaccurate for a variety of factors. These views are as of the date listed above and are subject to change based on changes in fundamental economic or market-related data. The ETFs presented above are not intended to be benchmarks for performance. Rather, they are intended to be demonstrative of a particular sector or segment the investment universe discussed. Each ETF was selected as opposed to an index to more accurately reflect what an investor might experience. There are other ETFs or indices that might be representative of the same spaces. However, we believe the ones shown are sufficiently representative to assist us in explaining our investment thesis. Please contact your Advisor in order to complete an updated risk assessment to ensure that your investment allocation is appropriate.
